On The Lookout

I have a little time this fine Saturday morning so I thought I would share some observations with you.

First of all, we have to talk about the open interest changes on Thursday. You remember Thursday, don't you? The day of the big beatdown? As an aside, how many times has this now happened in 2012 alone? Anytime The Bernank steps in front of a mic, the metals get crushed. What was last week...about the 7th time this has happened this year alone? At any rate, from the Comex close of Wednesday to the Comex close of Thursday, gold was down $50.30 and silver was down $1.55. As Ruprecht would say: "That's a lot". Let's keep in mind a couple of things here:

Price declines when there are more sellers than buyers.

There are two kinds of selling pressure. Long liquidation and naked short selling.

When longs liquidate, they are closing an open position. This causes total open interest to decline.

When naked shorts are added, this is opening a new position. This causes total open interest to rise.

If you are to believe The Cartel Apologists and Disinformation Agents, then The Bullion Banks are simply benevolent market makers who add liquidity to the metals markets by taking the other side of these trades. They are the willing providers of paper metal when buyers initiate new longs AND they are the buyers on the other side of new, spec naked shorts.

(This is, of course, true and the CoT and Bank Participation Reports bear this out. The problem with The Apologists is that they stop right there and fail to consider/comprehend that The Bullion Banking Cartel may have more nefarious aims as they serve their Fed/ECB/BoE/BoJ/SNB masters.)

Since late February, The Cartels have been rapidly reducing their net short exposure in both gold and silver. For gold, The Cartel net short position has fallen from a ratio of 2.69:1 to a current (a/o last Tuesday) ratio of 2.08:1. That's a drop of 36%. In silver, the reduction is even more dramatic. On 2/24/12, The Cartel net short ratio was 2.32:1. As of last Tuesday, it now stands at 1.36:1. That's a drop of 73%.

So now, with these points in mind, let's assess the open interest changes from Thursday. For gold, while price was falling over $50, the total open interest change from Wednesday to Thursday was just 34 contracts. From this, what can we surmise? Clearly there were equal parts long liquidation and new shorting on Thursday. All of that selling pressure drove price down $50. The overall Cartel position was likely flat and the entire shift was within the "Large Spec" category where spec longs were dumped and spec shorts were added.

The $1.55 decline silver, on the other hand, was an entirely different event. While silver was falling, the total open interest grew by over 6,000 contracts and, at 127983, it stands at the highest level for all of 2012 and it's a level we haven't seen since last May! More on the implications of this in a minute but, first, what does this OI rise indicate?

Again, as pointed out above, a rising OI coupled with a falling price is an indicator of naked short selling. Having price fall 5% and OI rise 5% shows that the entire event was caused by new spec short selling, not long liquidation. How can I assume that it is the specs that are adding shorts and NOT The Silver Cartel? Re-read point #7 above. If this is the case, then Thursday put a significant dent in the remaining Cartel net short position.

As of last Tuesday, The Silver Cartel net short position was 16,954 contracts. They were short 64,401 and long 47,447. The difference is 16,954. (As an aside, per the latest Bank Participation Report, JPM was short 17,000 all by themselves. This means the rest of The Silver Cartel is already net flat.) So...IF Thursday's selloff was almost entirely caused by naked short selling and IF that short selling was coming almost entirely from the specs...the current net short position of The Silver Cartel may be as low as 11,000 contracts. Additionally, the balance MAY be JPM net short 16,000 and everyone else net long 5,000. Think about the implications of that for a moment.

Regardless, today the net short ratio of The Evil Empire in silver is at an historically low level. I have maintained for over a year now that the run-up in April of 2011 and the ensuing beatdown in the 14 months since has been a coordinated effort by The Silver Cartel to extricate themselves from their tenuous and extreme net short position. In late March of 2011, they were net short 55,000 contracts. Today, they are net short as few as 11,000 contracts. That's an 80% reduction and they are almost there, almost flat. The question of the day, and the ultimate subject of this post, becomes: WHAT HAPPENS NEXT?

Can silver reverse and rally while JPM battles the rest of The Cartel?

Must silver decline further in order for The Cartel to move to net flat?

Can silver decline further in the face of tight supply and strong physical demand?

I wish I had the answers but, obviously, I don't. I'm left to speculate and guess just like you are. One thing I do know, however, is this: Silver will reverse and it will then head much, much higher. For traders, the timing of this reversal is extremely important. For stackers, not so much. Any further dips in price should be greeted with joy as the opportunity to buy silver at these fiat price levels will not last much longer.

However, I recognize that even stackers watch the day-to-day price changes with great interest. With that in mind, take a good, long look at these charts of silver:

Look, I can assure you that silver is in very tight supply and it is increasingly difficult for Buyers of Size to get timely, price-efficient delivery. This condition of the physical market will make it very difficult for silver to break down through $26. Difficult, yes, but not impossible. On a very short-term basis, it's certainly possible for silver to be run through $26. There has to be a considerable amount of buy-stops under that level. "Harvesting" them alone could drop price below $25 and, after that, selling momentum could take price all the way to $22. Heck, maybe even $20.

I tell you this not because I expect this to happen. I tell you this so that you are mentally prepared. IF this happens, it will mark the end of silver manipulation, as we've known it. A brief drop into the lower 20s would allow The Cartel to finally move to a net flat or even net long position. From there, silver will rapidly recover and soar to new, all-time highs. Of this, I am 100% certain. Therefore, IF silver suddenly falls another 20%, do not freak out and panic sell your metal. This would be the biggest financial mistake you'll ever make.

Again, silver could and SHOULD hold the $26 floor simply because of the tight, physical marketplace. IF it doesn't, though, be prepared for the opportunity of a lifetime to buy silver at what will be an historic bottom. Price will not stay down for long, though, so you must be prepared to move quickly. Besides The Silver Cartel moving net neutral/long, there are several fundamental changes coming over the horizon for silver. Be strong and do not waver.

In this context, we should discuss gold, too. Any set of conditions that would allow for a raid in silver would likely cause a raid in gold, as well. Do the charts bear this out? Maybe. Take a look. Like $26 silver, you can rightly assume that there is an abundance of stops below $1525 gold. This has to have The Gold Cartel salivating. Can they pull it off in the face of extraordinarily strong, global demand for physical gold? Yes, they can but again, though, they won't be able to keep it down there long.

At it's last peak in August of 2011, note that gold broke out of it's primary channel and moved about $250 higher. Having broken down now and residing outside the channel, the risk remains that gold could fall $250 below the channel. This would take it to roughly $1400. Looking at the weekly chart, this would be a logical spot for support to appear, too. Again, I AM NOT SAYING that gold is going to fall to $1425. I am saying that it's a possibility and, if it does, this type of move would present to you an extraordinary and historic opportunity to BUY not sell. Just be mentally prepared, that's all.

Regardless of all this, it's going to be a great week around here. The new "podcast" site is finally set to open on Monday. Besides daily audio commentary from yours truly, the site will also include:

Member interaction with PM "gurus" (webinars, conference calls and chats)

And remember, the ultimate purpose of this new, "sister" site is to allow TFMR to stay completely as-is and grow at the same time. No fees. Never so many ads that you can't tell the content from the advertisements. A community where we all freely share and prepare.

I hope you have a great weekend. It's going to be a fun summer regardless of what the next few weeks may hold.

TF

About the Author

442 Comments

For four days since Wednesday, NatWest customers in the UK haven’t been able to withdraw money from ATMs, use online banking or make payments. One customer couldn’t go out on Friday night, this video is his response:

Based on my understanding of the history and the following working assumptions (possibly erroneous), does this make sense:

1) JPM manipulates the PM market, regardless of fundamentals or what the specs believe, basically the price is what JPM (and the Fed) want the price to be- for now.

2) JPM inherited/ owned a huge, unbalanced short position, which you pointed out above is diminishing toward net even with the recent whipsaw events.

3) I originally thought simplistically that all JPM was doing was "forcing" the silver price lower to relieve their shorts (that didn't sound right...). Ted Butler opened my eyes earlier this year when he said in a podcast (can't find link immediately) actually JPM dumps a bunch of sell orders (which are pulled back at the last minute- that seems illegal, but oh well) in a very brief and thin period to drive price low, but actually buys a lot of longs essentially at firesale manipulated price.

Q1: Is there evidence in the cartel OI that there is a buildup of longs to support this (is the net short dropping the same thing)?

4) One variable not discussed a lot here is not just number of OI shorts v. longs, which are directional numbers, but also at what price? The JPM outstanding inherited shorts are probably over a range of price, but a scenario occurred to me reading your post. Perhaps some short contracts are just too low for JPM to "get at"- see Dagney's comment above re Comex $18 silver. Maybe they want to gun the price to do the 'dump and grab' Ted B. was outlining, and at some point, do a calculation that they have so much in firesale shares, that they can afford to close out the remaining 'toxic shorts', absorb the loss and more than make up the difference by letting the price rise to a nice high. I still like the idea that the Fed has merely given them marching orders of a target PM price range (subject to modification if global picture warrants). I could see a JPM - Fed negotiated range that makes both happy and makes JPM money. I.e. let PM price rise slowly, just not exponentially, which seems to be the recent track. May be even normalized /correlated to other indices. Win-win.

This says to me perhaps a few more gyrations around 20-26 then up to 36-37 by Dec which is a quiet 20-25% increase for the year. This seems to be approximately what you're saying, no? All this assumes no black swans or forces beyond TPTB control (yes, I do believe those exist).

Just going to copy and paste a few posts from an Irish forum, give you an idea what people are saying.

A few things pissing me off!!
1. Their has been no public apology, we are hearing reports of an apology, But no one has shown face on TV to apologise.

2. Where are the off site back up systems???? My girlfriend test's her banks back up systems every few weeks with a technical shut down scenario.

3.What happened to the banks opening on Saturday? From what I see the only banks that where open where the ones open any way on a Saturday with hours extended by a couple of hours. My local branch is Coolock.....Not open. Oh yes sure Coolock is only a small country town. Population 50.

4. We are waiting for 3 Salaries into this home since Thursday. Still no sign of them. Yet I just paid for a pizza with my Ulster Bank debit card. Guess what payment showed up instantly online.

There is something more to this then a simple IT fault. There has been no respect to customers at all.

Remember Ulster Bank, We could shut you down next week, with a mass withdrawal of funds. So get your act together and make a public apology to our faces.

Left for Spain on Monday and took a bit of cash with the intention of topping up as we needed to with the bank cards and we can´t take anything out of my account which has all our spending money we´re leaving on Monday as well when it´s "fixed" so we´ve had a very frugal holiday which is saying something with two kids under 2.

Will def be looking for a proper explanation to this.....as well as checking if there is anything in my travel insurance

I am a UB customer (of only 6 weeks, having left AIB) and am awaiting both a Family Income Supplement social welfare payment which was due on Thursday, and my salary, which was due on Friday.

I checked account online at just past midnight last night and neither appeared in my account - online banking went off around 2am and is still not available to check my account this morning - phone line is going straight to customer service advisor, (and god knows how long of a queue) - no automated balances.

I will be going straight back to AIB after this fiasco. The fees might be worth it after all.

Basically Blythe has done a masterful job, having almost completely extricated JPM from its silver short position, while at the same time providing us with potentially the mother-of-all buying opportunities. Ironic, isn't it, that my homegirl was being lambasted as if she were the she-devil, when all along she should have been praised for the way she's negotiated a very tricky path.

but i thought TA was useless now with the manipulation. im watching everyone's calls closely. if this falls then we go here and get this support, i mean i watch everyone's words very closely and no one has been the right as of late..not even many posting on this board. from your post turd, this is not going to be an explosive summer maybe only to the down side,not to the upside..im not saying it is going to happen but it could. That's life my friends on any planet you live on. Always prepare for the unknown. You're saying you don't like the chart, but i thought it was time to throw the charts out. sometimes i think it's all guess work. we really don't know where the next move is, but we have to watch what the central bankers will do next..from the posts in prior weeks/months and posts it would have served people in the manner that we've hit our bottom. how many times have i counted on these boards "buying opportunity of a life time." maybe it's better to just by once a month. there're been to many buying opportunities of a life time and i wonder how many of you really have any cash left. but we will never know will we.

If this plays out the way the posts say it will then this will not be an upside summer. will just have to wait it out. hmmm historical buying opportunity. i thought that was silver at $26. not saying...just saying

SILVER IS GOING TO HAVE AN EXPLOSIVE AND EXCITING SUMMER AND IT IS GOING MUCH, MUCH HIGHER VERY SOON. BEFORE THIS HAPPENS, JPM ET AL MAY FLUSH THE STOPS AT 26 AND DRIVE PRICE TOWARD 22 AS THEY MOVE TO NET FLAT.

i've been watching too many people call this and that. All the KWN folks, which ive done an audit on, and they've all been wrong, as well as many others. i know we are going higher. eventually..im just tied of all the calls one way or the other. i'd just prefer to call what we are in as a major correction, like we had in 1975 and just sleep for another couple of months and wake me up.

Wouldn't it be ironic if Stuknex (sp) or a variant is taking down their software/hardware? And just as SWIFT is about to be downsized too. Or it may be a side effect of cost cutting. Many industries have as a first response to improving the bottom line by taking an ax to the maintaince budget. That approach can work for a little while and then it catches up with a vengence.

The least likely issue is lack of funds. True, like most banks RBS is broke. But that's what Central Banks exist for: to paper things over.

Two weeks ago I said that predicting support and resistance levels was almost impossible due to the current lack of market participation. I have always stated that TA in gold and silver works simply because the metals are so grossly manipulated.

And furthermore, any idiot can see the quadruple and quintuple bottoms at 26 and 1525 and assume that there are literally boatloads of sell stops waiting to be harvested below there. If The Cartels are able to ignore/contain the physical depletion that would come with the paper price drop, you can be certain that they won't hesitate to take them out.

Your explanation is so good I finally understand how and why you watch the COT. I've been following your thoughts without completely understanding. It's a great skill to be able to explain matters that seem complex in a way that even I, a non-economics person most of my life, can understand.

Thank you for the time you give to share your understanding with the rest of us.

So your prediction of explosive prices amounts to an assumption that the COT really does mean anything and that the likes of jpm will continue to reduce their short contracts to a flat position by the summer? . I will say this for you Turd, you are brave in making bold statements :)

I love your article but have one nagging concern. The analysis is based entirely off of COMEX positions. Is it possible that instead of removing their net short position, the cartel are just transferring it to the LBMA or the new exchange in China? On those other exchanges their activities would be much more opaque to us.

In fact, if JPM is really doing this on behalf of the government, it makes no sense for them to close their positions as the government still has an active desire to suppress the metals to hide inflation and support bond prices, so appearing to close their all too public positions on the COMEX while simultaneously opening new shorts overseas would fit their agenda.

I`m a NatWest customer, and I managed to get out £240 yesterday from an ATM, but no more.

Also, I took delivery of ^ kilo bars of silver - so far, so good - but they were Credit Suisse bars, quite old and with a raised circle in the middle of the back , which looked like they`d been tampered with. Anyone know how I can tell whether they`re pure, using house-hold equipment? They have serial numbers, but all out of sequence.

Bam, it depends on which way you look at this, the stagnation can now play out for many years and during that time as demand dries up, we could well see a big move into cash hoarding and a big slide in commodity prices. Sorry, but silver is being traded as a commodity as someone with a significant physical position, I wish that wasn't the case but we need to see past the hype.

" In silver, the reduction is even more dramatic. On 2/24/12, The Cartel net short ratio was 2.32:1. As of last Tuesday, it now stands at 1.36:1. That's a drop of 73%."

Ok, let's do some math here to figure when the Cartel should be flat based off the rate they are covering.

To do that we need to figure out how many days passed between 2/24/12 and last Tuesday 6/19/12

Ok, did the math for you, it was 116 days.

Now to figure out the average ratio drop for those days (2.32-1.36)= .96

To get the average drop per day divide .96/116=0.0083 ratio covering per day

To determine the number of days needed for the cartel to be net flat just divide (.36/.0083)=43.5 Days From 6/19/12 That puts us at 8/1/12 or the Month of August when the cartel will be net flat at the current rate of covering.

If they came from a reputable dealer I would not worry in the slightest. Some of the older bars look like they were made by children. They are not really likely to have been fiddled with. Not enough money to be made from the amount of work involved.

And the immediate term is what its all about - winning the currency war:

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FOA on currency war:

''We will see the beginnings of a currency war like no other in our time...

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Several years ago, many gold bugs and gold advocates missed the path as the trail turned. Something I pointed out at the beginning of these "message" talks. As most of you will no doubt agree, almost all gold discussion still centers around "the dollar's war with gold". Truly, the evolution of this story will be how that war ended then and now the dollar's war with the Euro began! A very large part of that war strategy, employed by the ECB/BIS, was to let the dollar / IMF faction hang themselves by expanding and supporting the whole arena of this dollar paper gold market. Inflating the gold market place with so much "paper gold" that we would eventually have to bankrupt ourselves just to keep the dollar in the war game against the Euro.

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Yes, the war now is between the Euro and the dollar! The Washington Agreement placed gold "on the road to high prices" as it signaled a phasing out of Euro support for our American gold values. How fast gold can, now, rise will gauge how much staying power the dollar has in all this. If there is any gold war now, it's to be in just how fast the dollar gold market can disintegrate into worthless IOUs! So, don't count on this destruction of our paper gold market to mark the real value and availability of physical gold; that ratio will split somewhere down the goldtrail. This action will scare most harden gold investors to death; especially the ones in leveraged gold stocks and lesser white metals!

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The war between gold and the dollar has been over for a while now. The action, today, is between the dollar and the euro arena and this is what will break the price lock on gold. Leaving gold bugs with a lot of questions that ask why this: both systems will strive for a higher currency price for gold; one doing it because they have to; the other doing it because they want to! The casualty on this battlefield will be the world gold market as we know it. A market caught between how Western perception thinks gold's price should be "discovered" and at what price level trading in physical gold craters the entire paper structure. A structure of American based "paper gold".

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We have been saying for some time that this will be "the" show to watch unfold; but only if your holdings allow you to stay still in your seat as it happens (smile).

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They shifted their war on gold to become a war on the Euro,,,, only too late. Now, knowing that the Euro is a fact, we must have a super gold price if the dollar is to stay in the game! The question becomes one of supporting a cheap paper price for the sole function of keeping the market and all its bullion players alive. With the war on gold over, they need to turn their tanks around to face the real enemy but cannot.''

All the KWN folks, which ive done an audit on, and they've all been wrong, as well as many others.

If everybody is wrong now and again, that simply means they are human, nobody can always be right :)

That said, not everybody even on KWN was cheerleading with "gold/silver to the moon in 3 weeks" type of thing. Those who did - Turk and von Greyerz come to mind - did that a few months back, they have been a lot more reasonable sounding lately, in fact, the latest KWN interview with Turk sounds quite reasonable to me, the exuberance is all but gone.

Some actually predicted that prices of gold and silver are likely to head lower before heading higher, particularly Mark Faber (though he doesn't seem to appear on KWN). He is now saying that prices might still head lower but gold is probably a good buy but that diversification is key, one shouldn't invest everything in PMs.

Silver perma-bull David Morgan was actually saying recently that he thought that silver had one more low to make - around mid-June, before heading higher, but not very fast. His advice was actually to gradually buy silver over the next 6-12 months.

Yesterday you mentioned $10 milk in the future, so I got inspired. I've been keeping records of all my goats and their milk production. Since they are Nubian goats, their milk is high in Omega 3 butterfat, but they give less of it than Swiss goats. It Really Tastes Delicious!

So I added up what my favorite goat has given me so far this year. Since April 1st she has given me 84 gallons exactly! No wonder I am drowning in milk, since I am now milking four goats. The blessing is, I am able to keep an unemployed friend's family in milk. Their children are not suffering at all. They come and help me with the goats, and go home with a gallon of milk. Win! Win!

I'm really, really hoping everyone is stacking food as well as metals. If you are watching what is happening in Greece, people are hungry. Parents are abandoning their children on the streets (wicked!!!!!!!) Folks are lined up waiting for food handouts. The scene is tragic.

And I suspect that it is coming here (USA) as well.

So stack some food. Having hungry children sounds like no fun to me! Being hungry sounds no fun to me!

And maybe, just maybe, you may want to get a dairy goat or two or three. Then all your dairy needs will be met. And you will be able to be a blessing to the children in your immediate neighborhood. ..

Let me put it another way they keep lessening their short position and yet they are still able to shatter the price down below $27? Not only that, but it shows f all signs of bouncing back, it's just languishing.

Another way of looking at it is, if they got to even and it's at $25-$26 (or whatever), how much lower could they push if if they are willing to pile up shorts again?

I think this is where TF's analysis of the physical market comes into play. If there weren't pressure there, it could be ugly. They've shown a willingness to go tens of 1000's of contracts short...regulators don't care...the only reason I could see to NOT do it more is if that run-up last year really DID scare them and create physical pressure. Time will tell.

Thanks for replies. I`ve been doing a little research, and came across this:

`The key to faking silver bars is that they can not be sold into the industrial market as the melting point of Moly is much higher and it doesn't have the same electrical conductivity. The SLV inventories represent the perfect resting place for "silver bars" to be stored publicly yet not removed for industrial uses. Clearly it can't be in the COMEX or LME warehouses since both exchanges can be called for delivery.

JP Morgan manages the physical silver which can only be withdrawn by this short list of "Authorized Participants"...who know where their loyalties lie!

Uh-oh!! These bars are very scratched, which is fine, but it`s this small round plug-hole at the back that looks odd, and my supplier is careful to point out on his website "Not Baird" (i.e. buyer beware). I`m tempted to melt one down.....any advice?

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DISCLAIMER: The charts and analysis provided here are not recommended for trading purposes. Trade at your own risk. The Turd provides knowledge not direction. Turd holds no liability for your trades and decisions but he's happy to take credit when credit is due, particularly through the "donate" button. Read more...